South Korea, caught between a sagging economy and a feared property bubble, yesterday announced new measures aimed at reining in soaring home prices while keeping its key interest rate unchanged.
The government yesterday revived a price ceiling system for newly built apartments, requiring construction firms to reveal their building costs.
The price cap system was removed in 1999 when South Korea was struggling to escape from the Asian financial crisis.
Construction companies have since taken advantage and jacked up selling prices for new homes to almost double actual building costs while both speculative and underlying demand have added to the upward pressure.
"The government measures are aimed at enhancing transparency in home prices," Minister of Finance and Economy Kwon O-kyu said at a press conference.
"This will help drive down new home prices by more than 20 percent," the top economic policy maker said.
Aside from the revival of a price cap system, the government will also push to build 1 million homes by 2012, with 56,000 planned for Seoul and its surrounding areas this year alone.
Kim Kwang-suk at Speedbank, a property consulting agency, said the new measures will have a strong impact in terms of reining in the property boom which saw prices in Seoul alone rise 19 percent last year.
The boom is one of the downsides of a policy of keeping interest rates low to bolster the slowing economy, allowing easy finance.
"The new move is aimed at curbing the prices of new homes as past policies were focused on restraining speculative demand through higher taxes or increasing the supply of new apartments," Kim said.
Earlier yesterday, the Bank of Korea said it was keeping its call rate target for January unchanged at 4.5 percent despite demands for a hike in order to head off a property bubble stoked by easy loans.
Largely expected, the decision marked the fifth consecutive month the central bank has kept the call rate target on hold after a surprise 25 basis points increase last August to 4.5 percent, the highest since August 2001.
"The economy maintains its growth momentum of a moderate degree, even if domestic consumption somewhat weakened," central bank governor Lee Seong-tae said.
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